Tech firms hoard huge cash piles - Their excuses for doing so don't add up
URL: http://www.economist.com/news/business-and-finance/21722809-their-excuses-doing-so-dont-add-up-tech-firms-hoard-huge-cash-piles
Sumpter
Tech firms hoard huge cash piles
Their excuses for doing so don't add up
Print Edition, Business, June 1st, 2017
1) The valuation of the world top 5 tech firms, Apple, Alphabet, Microsoft, Amazon, and Facebook has reached the historical high market valuation of $2.9trn.
2) These oligopolies are piling up cash in their balance sheet as if they expect a financial crisis but not to dominate the market.
3) Their profit/margin ratio and business environments wouldn't get any better than now in investors' perspective.
4) Those biggest tech firms prefer to reserve cash as twice as their gross cash flow unlike old-economy oligopolists such as beer, telecom, or cable companies who used to finance themselves with debt.
5) This amount of cash piles far exceeds that of the early generation tech firms such as Cisco, Intel, Oracle, Qualcomm and Texas instrument of which the average ratio is 1.3 times since 1996.
6) Despite buy-back programs of Alphabet and Facebook and Apple's dividend and repurchase policies, the total net cash will soar to $680bn by 2020, and even the smallest one among them, Amazon will reach to $50bn.
7) The reason behind this cash build up is tax evasion because repatriating half their cash costs $50bn.
8) The cash buffer far exceeds the amount needed for contingency plans such as financial shocks or hacking damages. The simulated net cash after all possible cost will be $380bn by 2020.
9) It is also much larger than the investment needed for research and development. To soak up the cash, they will annually have to spend almost $300bn by 2020
10) twice what the global venture-capital industry spends each year, 51 times the annual cash spending of three cash-hungry firms, Netflix, Uber, and Tesla, and 37 times.
11) The reason behind hoarding cash is not because of unpragmatic management obsessed with reserving too much cash to be rich.
Valley of death
12) If the tax code is reformed, they would return their cash to shareholders.
13) Maybe they prefer to maintain their giant insurance policy worrying about business risks that could eliminate their current profits.
14) Either their earnings rise as Wall Street expects, investors keep an eye open on them.
Sumpter
Tech firms hoard huge cash piles
Their excuses for doing so don't add up
Print Edition, Business, June 1st, 2017
1) The valuation of the world top 5 tech firms, Apple, Alphabet, Microsoft, Amazon, and Facebook has reached the historical high market valuation of $2.9trn.
2) These oligopolies are piling up cash in their balance sheet as if they expect a financial crisis but not to dominate the market.
3) Their profit/margin ratio and business environments wouldn't get any better than now in investors' perspective.
4) Those biggest tech firms prefer to reserve cash as twice as their gross cash flow unlike old-economy oligopolists such as beer, telecom, or cable companies who used to finance themselves with debt.
5) This amount of cash piles far exceeds that of the early generation tech firms such as Cisco, Intel, Oracle, Qualcomm and Texas instrument of which the average ratio is 1.3 times since 1996.
6) Despite buy-back programs of Alphabet and Facebook and Apple's dividend and repurchase policies, the total net cash will soar to $680bn by 2020, and even the smallest one among them, Amazon will reach to $50bn.
7) The reason behind this cash build up is tax evasion because repatriating half their cash costs $50bn.
8) The cash buffer far exceeds the amount needed for contingency plans such as financial shocks or hacking damages. The simulated net cash after all possible cost will be $380bn by 2020.
9) It is also much larger than the investment needed for research and development. To soak up the cash, they will annually have to spend almost $300bn by 2020
10) twice what the global venture-capital industry spends each year, 51 times the annual cash spending of three cash-hungry firms, Netflix, Uber, and Tesla, and 37 times.
11) The reason behind hoarding cash is not because of unpragmatic management obsessed with reserving too much cash to be rich.
Valley of death
12) If the tax code is reformed, they would return their cash to shareholders.
13) Maybe they prefer to maintain their giant insurance policy worrying about business risks that could eliminate their current profits.
14) Either their earnings rise as Wall Street expects, investors keep an eye open on them.
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